Exam 15: Compensation and Retirement Planning

New companies and those with volatile earnings and uncertain cash flows generally prefer defined-contribution plans to defined-benefit plans.

Six years ago, HOPCO granted Lin Sing a nonqualified option to purchase 1,000 shares of HOPCO stock at $55 per share. On date of grant, the market price was $50 per share. This year, Lin Sing exercised the option when the market price was $64 per share. How much ordinary income does Lin Sing recognize because of the exercise?

This year, Nilo Inc. granted incentive stock options (ISO) to 230 employees. For financial statement purposes, Nilo recorded a $179,200 expense for the estimated value of the ISOs. As a result of this transaction, Nilo has a:

Harold Biggs is provided with $200,000 coverage under his employer's group-term life insurance plan. Which of the following statements is true?

An independent contractor is not entitled to the same fringe benefits as an employee.

Reimbursed employment-related business expenses have no net effect on the employee's taxable income.

Six years ago, HOPCO granted Ms. Cardena a nonqualified option to purchase 1,000 shares of HOPCO stock at $12 per share. On date of grant, the market price was $10 per share. This year, Ms. Cardena exercised the option when the market price was $33 per share. Compute HOPCO's deduction resulting from the exercise.

An employer is allowed to deduct the accrued expense for the employer's liability to pay nonqualified deferred compensation.

Carl Meyer, age 56, terminated his employment with his corporate employer because he wanted to begin a second career as a freelance photographer. If Carl withdraws funds from his employer-sponsored qualified plan, he will pay the 10% premature withdrawal penalty.

Jason, a single individual, is employed by KLD Inc. but doesn't participate in any employer-sponsored retirement plan. Jason's annual contribution to his Roth IRA is deductible.

An employee recognizes taxable income if his employer provides group-term life insurance coverage in excess of $50,000.

The IRS is less likely to raise the issue of reasonable compensation during the audit of a publicly held corporation than a closely held corporation.

Lawrence is a U.S. citizen who has worked in his employer's Paris office for the past five years. Compute Lawrence's 2015 AGI if his only item of income was his $130,000 salary.

Mr. Wang's corporate employer transferred him from its Seattle office to its San Jose office. Mr. Wang incurred $18,000 of moving expenses to relocate his household to San Jose. Which of the following statements is true?

A stock option is the right to purchase the stock of a corporate employer at a stated price for an indefinite period of time.

Mr. Scott, age 46, quit his job with MNP Inc. and withdrew the $184,000 balance in his Section 401(k) plan. Mr. Scott immediately deposited the withdrawal in a new rollover Roth IRA with a local bank. Which of the following statements is false?

Unreimbursed employment-related business expenses are a miscellaneous itemized deduction.

The value of a nontaxable fringe benefit is different for each employee because employees have different financial needs and consumption preferences.

Julie, a single individual, is employed by Dashell Inc. but doesn't participate in any employer-sponsored retirement plan. Julie's annual contribution to her traditional IRA is deductible.

Contributions to an employer-sponsored qualified retirement plan are deductible by the employer in the year of contribution but are not included in the employees' gross income.